Category Archives: Confidentiality Agreements

New Defend Trade Secrets Act Requires Notice in Employee Agreements

pillarsOn Wednesday, President Obama signed into law the Defend Trade Secrets Act of 2016 (DTSA). The DTSA sets a single national standard for trade secret protection and gives the option of bringing trade secret cases in federal court and provides for remedies (such as seizure and recovery of stolen trade secrets).  The DTSA also creates whistleblower protections for employees who disclose trade secrets to an attorney or governmental official for the purpose of reporting or investigating a suspected violation of law.  But most urgently for employers, the DTSA contains a new notice requirement that employers need to take action quickly to satisfy.

Effective immediately, any new or updated agreements with employees, consultants or independent contractors that govern trade secrets or confidential information need to include a “notice-of-immunity.”  The notice may be provided via reference to a general policy document rather than restating the entire immunity provisions in each agreement.  An employer that fails to provide this notice will forfeit their right to exemplary double damages and attorneys’ fees in an action brought under the DTSA.

Employers wishing to take advantage of the DTSA’s protections need to revise their standard agreements and ensure that any agreement provided on or after May 11, 2016 includes the required notice-of-immunity.  We recommend that you consult with legal counsel to ensure compliance with this new requirement.

 

SEC Takes Aim at Confidentiality Agreements

We – and the SEC – think it’s a good time to review your confidentiality agreements.confidentiality-agreement (2)

It’s no secret that the Securities and Exchange Commission (SEC) has had employee confidentiality agreements on its mind for some time now. In the eyes of the SEC, confidentiality agreements, if overly-broad, may prevent or discourage would-be whistleblowers.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 amended the Securities Exchange Act to include protections and incentives for individuals who come forward with allegations of wrongdoing. Rule 21F-17(a) explicitly prohibits employers from taking action that would “impede” an employee from “communicating directly” with the SEC about a “possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement.”

On April 1, 2015, the SEC announced that it had settled its first enforcement action involving an overly-restrictive confidentiality provision under Rule 21F-17(a). The action primarily focused on a confidentiality statement that employees were required to sign in connection with the company’s internal investigation procedures. The statement read:

I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be grounds for disciplinary action up to and including termination of employment.

The SEC determined that this statement violated the whistleblower protections under Rule 21F-17(a), even though there was no evidence that any employee was prevented or discouraged from communicating with the SEC because of the language. The company agreed to resolve the matter by: (i) paying a penalty; (ii) agreeing to cease and desist from any future violations, (iii) amending the language of the provision; and (iv) agreeing to make reasonable efforts to contact employees who had already signed the agreement to inform them that they did not need to gain permission from anyone to contact governmental agencies. The SEC approved the following amended language:

Nothing in this Confidentiality Statement prohibits me from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. I do not need the prior authorization of the Law Department to make any such reports or disclosures and I am not required to notify the company that I have made such reports or disclosures.

In light of this ruling (and the NLRB’s activity in this area that we discussed in our post yesterday), we recommend that you review all agreements containing confidentiality clauses – including employment agreements, severance agreements, employee handbooks, settlement agreements, nondisclosure agreements and any other similar agreements. If necessary, these clauses should be revised to include an express statement that nothing in the agreement discourages and/or prevents any individual from communicating with any government agency, including the SEC.